Motorola Solutions v. Zurich Insurance Co. ( 2017 )

2017 IL App (1st) 161465No. 1-16-1465
Fifth Division
Modified opinion filed August 4, 2017
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
FIRST DISTRICT
______________________________________________________________________________
)
MOTOROLA SOLUTIONS, INC., )
)
Plaintiff-Appellant, )
)
v. )
)
ZURICH INSURANCE COMPANY; ASSOCIATED ) Appeal from the Circuit Court
INDEMNITY CORPORATION; CONTINENTAL ) of Cook County.
CASUALTY COMPANY; NATIONAL FIRE )
INSURANCE COMPANY OF HARTFORD; ) No. 11 L 001902
TRANSPORTATION INSURANCE COMPANY; )
AMERICAN CASUALTY INSURANCE COMPANY ) The Honorable
OF READING, PENNSYLVANIA; LIBERTY ) Margaret A. Brennan,
MUTUAL FIRE INSURANCE COMPANY; and ) Judge Presiding.
LIBERTY INSURANCE COMPANY, )
)
Defendants )
)
(Zurich Insurance Company and Associated Indemnity )
Corporation, )
Defendants-Appellees). )
)
______________________________________________________________________________
PRESIDING JUSTICE GORDON delivered the judgment of the court, with opinion.
Justice Hall concurred in the judgment and opinion.
Justice Lampkin dissented, with opinion.
OPINION
¶1 The instant appeal arises from a discovery dispute between plaintiff Motorola Solutions,
Inc., and defendants Zurich Insurance Company (Zurich) and Associated Indemnity
No. 1-16-1465
Corporation (Associated) concerning the production of documents that plaintiff claims are
privileged. The parties are engaged in insurance coverage litigation, stemming from several
underlying personal injury actions in which claims were asserted against plaintiff. Plaintiff
filed a motion for summary judgment with respect to Zurich’s duty to defend one of the
actions and the trial court stayed briefing on the motion to permit limited discovery
concerning a late notice defense asserted by defendants. As part of discovery, defendants
sought the production of several documents that plaintiff claimed were privileged. The trial
court ordered plaintiff to turn over the documents, and plaintiff refused. The trial court then
held plaintiff in friendly civil contempt to permit plaintiff to appeal. For the reasons that
follow, we reverse the trial court’s order requiring production of the documents and vacate
the friendly contempt order.
¶2 BACKGROUND
¶3 We note that the parties’ briefs and portions of the record on appeal were permitted to be
filed under seal. While we respect the parties’ wishes to keep confidential material private,
our consideration of the issues on appeal necessarily requires us to discuss details of some of
these documents. However, we include only those details necessary to our resolution of the
issues on appeal.
¶4 The instant appeal is the third time the parties have been before this court with respect to
the insurance coverage litigation: we considered the scope of releases executed by the parties
in Motorola Solutions, Inc. v. Zurich Insurance Co., 2015 IL App (1st) 131529, and
considered underlying plaintiffs’ requests to intervene in Motorola Solutions, Inc. v.
Continental Casualty Co., 2015 IL App (1st) 131724-U. To the extent that these earlier
2
No. 1-16-1465
decisions discuss facts that are helpful to our understanding of the issues in the instant
appeal, we repeat them here.
¶5 On February 18, 2011, plaintiff filed a complaint for declaratory judgment and breach of
contract against a number of insurance companies, including Zurich and Associated; the
complaint was amended on July 1, 2011, and again on February 22, 2013. Plaintiff sought for
the insurers to provide it legal representation to defend plaintiff and/or coverage for defense
costs under insurance policies issued by each of the insurers for four underlying personal
injury actions in which claims were asserted against plaintiff.
¶6 The four underlying actions (the clean room cases) alleged that plaintiff was liable for
injuries that children of plaintiff’s former employees and contractors allegedly sustained as a
result of exposure to various chemicals in “clean rooms” in plaintiff’s manufacturing
facilities. According to plaintiff’s complaint, from the 1960s through 2003, plaintiff operated
facilities that manufactured, among other things, semiconductor products. These facilities
included certain rooms that were designated as “clean rooms” in which the semiconductor
products were manufactured, which “were designed to prevent dust and other similar
materials from contacting semiconductor components during the manufacturing process.”
The clean room cases all involved substantially similar allegations, in general alleging that
hazardous or toxic materials were present in the “clean rooms” and that “either the father, the
mother, or both worked in [plaintiff’s] clean room facility for some period of time before,
and in a number of cases after, the [underlying] plaintiff child was born; often the period of
employment [was] alleged to have continued through the in utero period. The [underlying]
plaintiffs generally claim[ed] that the children were injured as a result of parents working in
clean rooms” as a result of toxic exposure.
3
No. 1-16-1465
¶7 Plaintiff’s complaint alleges that one or more of the insurer defendants had a duty to
defend and/or pay defense costs in the clean room cases and that, by failing to do so, the
insurers had breached their obligations to plaintiff under the insurance policies.
¶8 Both of the defendants in the instant appeal filed answers and affirmative defenses and
included counterclaims in which they alleged that plaintiff had released all of its claims for
coverage for the clean room cases in settlement agreements and releases that the parties had
executed in 2003. The parties then engaged in litigation concerning the scope of the releases,
which culminated in a bench trial on the issue in December 2012 and defendants’ first appeal
before this court in 2015, in which we affirmed the trial court’s finding that the releases did
not encompass the claims in the clean room cases. See Motorola Solutions, Inc. v. Zurich
Insurance Co., 2015 IL App (1st) 131529. During the pendency of the appeal, the trial court
stayed all action in the coverage litigation. However, the underlying plaintiffs in one of the
clean room cases sought to intervene in the coverage litigation in order to seek a modification
of a protective order covering discovery that had been conducted concerning the scope of the
releases. The trial court declined to assert jurisdiction on the motion to intervene in light of
the order staying the proceedings, and the appeal of that order was the basis for our second
decision in this matter. See Motorola Solutions, Inc. v. Continental Casualty Co., 2015 IL
App (1st) 131724-U.
¶9 According to plaintiff’s brief, while the issue concerning the scope of the releases was
being litigated, plaintiff was “effectively denied a defense” of the clean room cases “for
several years.” During that time, the underlying clean room cases were proceeding, and on
September 3, 2015, plaintiff filed a motion for summary judgment against Zurich, seeking a
4
No. 1-16-1465
declaratory judgment regarding Zurich’s duty to defend one of those underlying claims. 1 In
response, Zurich filed a motion pursuant to Illinois Supreme Court Rule 191(b) (eff. Jan. 4,
2013), seeking leave to take discovery concerning the timeliness of plaintiff’s notice to
Zurich prior to responding to plaintiff’s summary judgment motion. The trial court granted
Zurich’s motion on November 12, 2015, but ordered the parties to meet and confer about the
scope of discovery and the entry of a protective order. The parties negotiated an agreed
protective order, which the trial court entered on January 12, 2016.
¶ 10 The discovery sought by Zurich, later joined by Associated, included two categories of
documents at issue on appeal. One consisted of documents pertaining to plaintiff’s clean
room safety program (CRSP documents). In the 1990s, a number of lawsuits had been filed
against IBM, a competitor of plaintiff’s, concerning alleged birth defects found in children
whose parents worked in the manufacturing process in creating semiconductors in IBM’s
clean room facilities. According to plaintiff, “[plaintiff], as a prudent company also operating
in that manufacturing sector, engaged counsel and formed a working group to conduct an
analysis of [plaintiff’s] practices in and risks arising from its clean rooms.” This was known
as plaintiff’s “Clean Room Safety Program.” The efforts of the program resulted in the
creation of the CRSP documents in 1996, reports prepared by, or at the direction of,
plaintiff’s outside counsel. These CRSP documents had been sought by defendants since
discovery began in the coverage litigation, with plaintiff withholding the documents on the
basis of both the attorney-client privilege and the work product doctrine. Production of these
documents has also previously been considered by this court on appeal, where we affirmed
the trial court’s finding that the CRSP documents were not relevant to the issue of
1
According to the parties, the underlying claim has since been settled.
5
No. 1-16-1465
determining the scope of the releases in the first appeal. See Motorola Solutions, 2015 IL
App (1st) 131529, ¶¶ 135-42. Documents concerning plaintiff’s knowledge of the clean room
risks are also of great interest to the underlying clean room plaintiffs, who sought to
intervene during the pendency of the first appeal in order to obtain access to documents
covered by a protective order. 2 See Motorola Solutions, 2015 IL App (1st) 131724-U, ¶ 3.
¶ 11 The second category of documents sought by defendants concerned plaintiff’s 2003 sale
of its semiconductor manufacturing business to a new entity, Freescale Semiconductor, Inc.
In the course of that sale, plaintiff was required to file a United States Securities and
Exchange Commission Form S-1 Registration Statement (S-1 documents). The form contains
a section entitled “Risk Factors,” which informs potential investors about “significant risk
factors currently known and unique to” the seller of the securities. In this disclosure, plaintiff
stated:
“In the last few years, there has been increased media scrutiny and associated reports
focusing on a potential link between working in semiconductor manufacturing clean
room environments and certain illnesses, primarily different types of cancers ***
Because we utilize these clean rooms, we may become subject to liability claims.”
Defendants sought access to the documents related to the S-1 securities filing.
¶ 12 In response to defendants’ discovery requests, plaintiff declined to produce the CRSP
documents or the S-1 documents and, on January 20, 2016, defendants filed a motion to
compel production of the documents. In the motion, defendants claimed that these documents
were material evidence showing that plaintiff had been aware of the facts underlying the
clean room actions since at least 1996 and that defendants intended to rely on this evidence to
2
According to plaintiff, the underlying clean room plaintiffs again sought to intervene shortly
after the trial court granted the Rule 191(b) motion for discovery but were again unsuccessful.
6
No. 1-16-1465
support their late notice defense. Defendants argued that under the Illinois Supreme Court
case of Waste Management, Inc. v. International Surplus Lines Insurance Co., 144 Ill. 2d 178(1991), the attorney-client privilege and work product doctrines did not apply to shield
production of such documents from plaintiff’s insurers. In its response, plaintiff contended
that the CRSP documents were not prepared in connection with the defense of the clean room
actions and that plaintiff did not learn until December 2007 that any individuals were
considering pursuing any action against plaintiff, information which plaintiff promptly
forwarded to its insurers.
¶ 13 On March 8, 2016, the trial court granted defendants’ motion to compel, ordering
plaintiff to produce:
“All documents comprising the CRSP Notebook, as identified on the privilege
logs attached as Exhibits 2 and 17 to the Affidavit of Karen M. Dixon.
All communications to or from [plaintiff’s] legal and/or risk management
departments concerning the Clean Room Safety Program or any other assessments of
[plaintiff’s] potential liability for bodily injury claims arising out of the Clean Rooms
and/or the Clean Room Chemicals, Substances and Radiation.
All documents in the possession of [plaintiff’s] Corporate Insurance Department
(a/k/a risk management) that refer in any way to the Clean Rooms.
All documents, including all communications with [plaintiff’s] risk management
or legal department, concerning the disclosure of potential clean room related
liabilities to investors in *** December 2003 (the SEC S-1 Filing).
All documents/communications that refer in any way to potential clean room
related claims and/or liabilities that were received, sent, or created by [plaintiff’s]
7
No. 1-16-1465
legal and/or risk management departments prior to [plaintiff’s] first notice to
Associated/Zurich.”
¶ 14 On March 29, 2016, plaintiff filed a motion for reconsideration or, in the alternative, for a
finding of friendly contempt in order for plaintiff to appeal. On May 4, 2016, the trial court
denied plaintiff’s motion for reconsideration and found plaintiff in friendly contempt for
refusing to comply with its discovery order, imposing a $100 penalty. This appeal follows. 3
¶ 15 ANALYSIS
¶ 16 The instant appeal was filed pursuant to Illinois Supreme Court Rule 304(b)(5) (eff. Mar.
8, 2016), which permits an interlocutory appeal of “[a]n order finding a person or entity in
contempt of court which imposes a monetary or other penalty.” Here, the trial court found
plaintiff in contempt of court and imposed a monetary penalty. Accordingly, we have
jurisdiction to consider plaintiff’s appeal. “Because discovery orders are not final orders, they
are not ordinarily appealable.” Norskog v. Pfiel, 197 Ill. 2d 60, 69 (2001). “However, it is
well settled that the correctness of a discovery order may be tested through contempt
proceedings.” Norskog, 197 Ill. 2d at 69. “When [a party] appeals contempt sanctions
imposed for violating, or threatening to violate, a pretrial discovery order, the discovery order
is subject to review. [Citation.] Review of the contempt finding necessarily requires review
of the order upon which it is based. [Citation.]” Norskog, 197 Ill. 2d at 69.
¶ 17 On appeal, plaintiff argues that the trial court erred in ordering it to produce the CRSP
documents and the S-1 documents. We note that before the trial court, plaintiff argued that
the documents were shielded by both the attorney-client privilege and the work product
doctrine; however, on appeal, plaintiff focuses only on the attorney-client privilege, and
3
We note that Associated did not file a separate brief on appeal but joined in and adopted Zurich’s
brief.
8
No. 1-16-1465
accordingly, we will do the same. “Although a trial court’s discovery order is ordinarily
reviewed for a manifest abuse of discretion [citation], the proper standard of review depends
on the question that was answered in the trial court [citation].” Norskog, 197 Ill. 2d at 70. “If
the facts are uncontroverted and the issue is the trial court’s application of the law to the
facts, a court of review may determine the correctness of the ruling independently of the trial
court’s judgment.” Norskog, 197 Ill. 2d at 70-71. In the case at bar, the facts are
uncontroverted and we are considering whether the trial court properly applied the law
concerning privilege between an insured and its insurer to the uncontroverted facts.
Accordingly, this is an issue of law that we review de novo. De novo consideration means we
perform the same analysis that a trial judge would perform. Khan v. BDO Seidman, LLP, 408
Ill. App. 3d 564, 578 (2011).
¶ 18 I. Waste Management
¶ 19 As the parties recognize, the primary case concerning this issue is our supreme court’s
decision in Waste Management. Accordingly, we must consider the case, and its holding, in
considerable detail. In Waste Management, the insureds owned and operated a hazardous
waste disposal site that was the subject of a lawsuit alleging that the insured was responsible
for personal injury and property damage arising from the migration of toxic waste (the Miller
litigation). Waste Management, 144 Ill. 2d at 186. During the pendency of the Miller
litigation, the prior owners of the hazardous waste disposal site filed suit against the insureds
and the insureds filed a counterclaim, alleging negligent design, construction, and operation
of the site (the Nunn litigation). Waste Management, 144 Ill. 2d at 186. The insureds
obtained a $10.675 million judgment in their favor against the prior owners in the Nunn
litigation and ultimately settled with some of them for $1.5 million. Waste Management, 144
9
No. 1-16-1465
Ill. 2d at 186. The insureds also retained counsel, defended, and settled the Miller lawsuit.
Waste Management, 144 Ill. 2d at 186. After doing so, pursuant to their insurance policy, the
insureds sought indemnification from their insurers for $2.15 million in settlement costs and
$850,000 in defense costs, but the insurers denied coverage. Waste Management, 144 Ill. 2d
at 186.
¶ 20 Both the insurers and the insureds filed declaratory judgment actions, seeking a
determination of their respective rights and liabilities under the insurance policy. Waste
Management, 144 Ill. 2d at 186. In their complaint, the insurers alleged that one reason for
their denial of coverage for the Miller litigation was the insureds’ failure to advise them of
the Nunn litigation, which the insurers alleged constituted a breach of the cooperation clause
and other conditions of the insurance policy. Waste Management, 144 Ill. 2d at 187. The
parties engaged in discovery and, during discovery, the insurers requested production of
defense counsel’s files in the underlying Miller and Nunn litigations. Waste Management,
144 Ill. 2d at 187. The insureds produced some of the requested documents from the Miller
litigation but withheld others on the basis of the attorney-client privilege and work product
doctrine; they did not produce any of the files from the Nunn litigation. Waste Management,
144 Ill. 2d at 187. The trial court ordered the insureds to produce the files from the Miller
litigation but denied the insurers’ request for production of the files from the Nunn litigation;
the insureds refused to produce any additional documents, and the trial court found them in
friendly civil contempt. Waste Management, 144 Ill. 2d at 187. The appellate court affirmed
in part and reversed in part, and the supreme court granted the insureds’ petition for leave to
appeal. Waste Management, 144 Ill. 2d at 187.
10
No. 1-16-1465
¶ 21 The supreme court found that “the attorney-client privilege has no application in this
case.” Waste Management, 144 Ill. 2d at 191. The court found both of the insurers’
arguments to be equally significant and dispositive. Waste Management, 144 Ill. 2d at 191.
The court first considered the insurers’ argument that the cooperation clause of the insurance
policy rendered the attorney-client privilege unavailable. The court noted that “[t]he scope of
the duties imposed upon an insurer and its insured are defined and controlled by the terms of
the insurance contract. Any condition in the policy requiring cooperation on the part of the
insured is one of great importance [citation], and its purpose should be observed [citation].”
Waste Management, 144 Ill. 2d at 191. The court further noted that “[t]he basic purpose of a
cooperation clause is to protect the insurer’s interests and to prevent collusion between the
insured and the injured party.” (Emphasis in original.) Waste Management, 144 Ill. 2d at 191.
¶ 22 The court looked to the cooperation clause contained in the insurance policy at issue,
noting that “[t]he cooperation clause in this case imposes upon insureds the duty to assist
insurers in the conduct of suits and in enforcing any right to contribution or indemnity
against persons potentially liable to insureds. Further, the policy provides that insurers are
entitled to conduct any claim, in the name of insureds, for indemnity or damages against
persons, and that insureds ‘shall give all such information and assistance as the insurers may
reasonably require.’ ” 4 Waste Management, 144 Ill. 2d at 192. The court found:
4
We note that the dissent appears to take issue with our reliance on this aspect of the Waste
Management analysis, given that the Waste Management insureds in their petition for rehearing claimed
that the language of the policy at issue did not actually contain this language. See Waste Management,
144 Ill. 2d at 201-02. However, the insureds’ later arguments have no bearing on this portion of the
court’s discussion, which remains good law. In its supplemental opinion, the court expressly makes no
finding as to the merits of the insureds’ claims concerning the contractual language but finds that,
assuming arguendo the insureds were correct, a duty to cooperate nevertheless “could reasonably be
inferred based merely on principles of fairness and good faith.” Waste Management, 144 Ill. 2d at 202.
Thus, the Waste Management court merely finds an additional basis for its holding and does not in any
way invalidate its earlier discussion concerning the language of the policy.
11
No. 1-16-1465
“Here, the cooperation clause imposes a broad duty of cooperation and is without
limitation or qualification. It represents the contractual obligations imposed upon and
accepted by insureds at the time they entered into the agreement with insurers. In
light of the plain language of the cooperation clause in particular, and language in the
policy as a whole, it cannot seriously be contended that insureds would not be
required to disclose contents of any communications they had with defense counsel
representing them on a claim for which insurers had the ultimate duty to satisfy.”
Waste Management, 144 Ill. 2d at 192.
The court rejected the insureds’ argument that their duty to cooperate was rendered moot
once the underlying lawsuit was terminated, finding that the “[i]nsureds’ duty to cooperate
concerning matters covered by the insurance agreement did not end with the termination of
the underlying lawsuit, but rather continues for as long as insureds seek to enforce its terms,
and certainly to the point when insurers were requested to perform their end of the bargain.
The fact that the parties are now adverse concerning the interpretation of such terms does not
negate insureds’ contractual duty.” Waste Management, 144 Ill. 2d at 192. The court
concluded that “[a] fair reading of the terms of the contract renders any expectation of
attorney-client privilege, under these circumstances, unreasonable. We conclude that the
element of confidentiality is wanting and, therefore, the attorney-client privilege does not
apply to bar discovery of the communications in the underlying lawsuits.” Waste
Management, 144 Ill. 2d at 192-93.
¶ 23 The supreme court found the insurers’ second argument, that the attorney-client privilege
is unavailable to insureds under the common interest doctrine, to be “equally compelling.”
Waste Management, 144 Ill. 2d at 193. The court noted that “[e]vidence scholars have
12
No. 1-16-1465
variously stated that under the common interest doctrine, when an attorney acts for two
different parties who each have a common interest, communications by either party to the
attorney are not necessarily privileged in a subsequent controversy between the two parties.
[Citations.] This is especially so where an insured and his insurer initially have a common
interest in defending an action against the former, and there is a possibility that those
communications might play a role in a subsequent action between the insured and his insurer.
[Citations.]” Waste Management, 144 Ill. 2d at 193-94. The court found that, “[c]learly, here
both insurers and insureds had a common interest either in defeating or settling the claim
against insureds in the Miller litigation. We believe that the communication by insureds with
defense counsel is of a kind reasonably calculated to protect or to further those common
interests.” Waste Management, 144 Ill. 2d at 194.
¶ 24 The court rejected the insureds’ argument that the common interest doctrine did not apply
because the insurers provided no defense in the underlying suits, finding that “we believe that
the doctrine may properly be applied where the attorney, though neither retained by nor in
direct communication with the insurer, acts for the mutual benefit of both the insured and the
insurer. [Citations.] It is the commonality of interests which creates the exception, not the
conduct of the litigation.” Waste Management, 144 Ill. 2d at 194. The court found:
“On these facts, a less flexible application of the doctrine effectively defeats the
purpose and intent of the parties’ agreement. Insureds and insurers share a special
relationship; they are in privity of contract. In a limited sense, counsel for insureds
did represent both insureds and insurers in both of the underlying litigations since
insurers were ultimately liable for payment if the plaintiffs in the underlying action
received either a favorable verdict or settlement. To deny discovery in this instance
13
No. 1-16-1465
would be to disregard considerations of public policy which require encouragement
of full disclosure by an insured to his insurer.” Waste Management, 144 Ill. 2d at 194-
95.
The court also found that, despite the fact that the insureds were not seeking attorney fees or
settlement costs in the Nunn lawsuit, the insurers were still entitled to the files in that suit
because the insureds’ position “overlooks insurers’ interest in any potential recovery for
contribution from the prior owners of the site. Moreover, insureds’ duty to cooperate with
insurers is not limited solely to situations where insureds seek recovery of costs. We believe
insurers and insureds shared a common interest in the conduct and outcome of the Nunn
litigation as well as in the Miller litigation. Thus, insurers are entitled to the Nunn files.”
Waste Management, 144 Ill. 2d at 195.
¶ 25 The supreme court concluded: “In sum, insurers’ entitlement to production of the files
arises out of the contractual obligations and the common interest doctrine. Their right to
complete disclosure is not only necessary to proper resolution of the pending lawsuit, but
exists irrespective of the now adversarial nature of the parties’ relationship. The attorney-
client privilege simply has no application in this case.” Waste Management, 144 Ill. 2d at
195.
¶ 26 II. Cooperation Clause
¶ 27 In the case at bar, we agree with plaintiff that Waste Management does not encompass the
situation present in the instant case, as Waste Management involved a factual scenario in
which the insurers were seeking documents from the litigation for which the insureds were
seeking indemnification. By contrast, in the case at bar, defendants have not sought the files
from the litigation in the underlying clean room cases; instead, they are seeking files that
14
No. 1-16-1465
were created years prior to any litigation. The difference this distinction makes becomes
apparent when examining the cooperation clause of the Zurich policy, which Zurich claims is
“virtually identical” to the one at issue in Waste Management. The cooperation clause
requires plaintiff to “cooperate with the company and, upon the company’s request, assist in
making settlements, in the conduct of suits and in enforcing any right of contribution or
indemnity against any person or organization who may be liable to the insured ***.” In
Waste Management, this clause applied to the files the insurers sought, as they were files that
concerned the conduct of the suits and the enforcement of rights of contribution or
indemnity. By contrast, nothing in this cooperation clause touches on the disclosure of the
contents of plaintiff’s CRSP documents, which were created by different attorneys over a
decade before any lawsuit was filed. It is thus unclear how the reports created under the
CRSP would assist defendants in “making settlements, in the conduct of suits, [or] in
enforcing any right of contribution or indemnity against any person or organization who may
be liable to the insured.” At most, such documents would help defeat plaintiff’s claims
against defendants, which is not a subject included in the cooperation clause. The same is
true of the S-1 documents, which are even further removed from the defense of any litigation
for which plaintiff seeks coverage, as they are related to securities filings. 5
¶ 28 The language of the cooperation clause in the instant case further distinguishes the
situation here from that present in Sharp v. Trans Union L.L.C., 364 Ill. App. 3d 64 (2006), a
case that defendants rely on to expand the holding of Waste Management to encompass the
present situation. In Sharp, after a number of lawsuits were filed against the insured based on
5
In their petition for rehearing, defendants point to additional language in the cooperation clause
which requires plaintiff to “assist in effecting settlements, securing and giving evidence, obtaining the
attendance of witnesses and in the conduct of suits.” (Emphasis added.) However, we do not find that this
language changes any of our analysis.
15
No. 1-16-1465
allegations that the insured improperly sold consumer information to third parties in violation
of the Fair Credit Reporting Act (FCRA) (15 U.S.C. § 1681 et seq. (2006)), the insurers filed
a complaint for declaratory judgment, seeking a declaration that the lawsuits were not
covered under the insurance policy. Sharp, 364 Ill. App. 3d at 69. Prior to the inception of the
policy, the insured had been the subject of an administrative complaint filed by the Federal
Trade Commission (FTC) based on alleged FCRA violations, and had also been the subject
of several lawsuits containing similar allegations. Sharp, 364 Ill. App. 3d at 66-68. The
insurers claimed that the new lawsuits were based on the same acts, errors, violations, and
omissions that were known prior to the inception of the policy because they were based on
the same allegations as the prepolicy suits. Sharp, 364 Ill. App. 3d at 69. During discovery,
the insurers sought “pre-policy documents that reflect, potentially reflect, or pertain to [the
insured’s] and/or its general counsel’s knowledge and/or analysis of the FCRA, the FTC
litigation, and private litigation arising from the same allegations as the FTC litigation.”
Sharp, 364 Ill. App. 3d at 70. The trial court found that the policy’s cooperation clause
required the insured to produce the documents, and the appellate court affirmed.
¶ 29 The appellate court looked to Waste Management and noted that, while Sharp involved
documents that were created prior to the inception of the policy, it nevertheless found the
Waste Management court’s analysis “instructive” (Sharp, 364 Ill. App. 3d at 72) because
“[t]he broad policies articulated by the supreme court in Waste Management are equally
applicable to our interpretation of the insurance contract at issue here” (Sharp, 364 Ill. App.
3d at 72). The court found that “[o]ur application of principles of contract interpretation and
the policies articulated in Waste Management reveals that the parties’ manuscripted
insurance policy was negotiated and written to require the disclosure of [the insured’s]
16
No. 1-16-1465
general counsel’s knowledge, work product, and communications regarding the pre-policy
litigation.” Sharp, 364 Ill. App. 3d at 72.
¶ 30 The court pointed to exclusion (g) of the policy, which excluded “ ‘any Claim arising out
of acts, errors, violations or omissions that took place prior to the effective date of this
Insurance, if the [general counsel 6] of the Named Assured on the effective date knew that
such acts, errors, violations or omissions might be expected to be the basis of a Claim.’ ”
Sharp, 364 Ill. App. 3d at 68. The court found that the policy protected the insurers from
insuring a known loss and “effectively defines known losses in terms of the general counsel’s
knowledge by excluding errors and omissions that [the insured’s] general counsel knew
might be the basis of a future claim. The only way to determine whether [the insured’s]
general counsel knew that a particular act might be the basis of a claim would be to look at
the general counsel’s legal reasoning and analysis of that act.” Sharp, 364 Ill. App. 3d at 73.
The court further pointed to the policy’s cooperation clause, which provided that “ ‘[t]he
Assured shall co-operate with the [insurers] in all investigations, including investigations
regarding the application and coverage under this Policy.’ ” Sharp, 364 Ill. App. 3d at 68.
The court found that reading the specific language of the cooperation clause together with
exclusion (g), the insured “agreed to share the legal reasoning and analysis of its general
counsel regarding whether there might be future claims based on its sale of target marketing
information.” Sharp, 364 Ill. App. 3d at 73. The court noted that, “[a]lthough such
information may be privileged because it is legal advice given by the general counsel to the
corporation about whether its actions could result in liability [citation], [the insured], in
6
The policy originally stated “Chief Financial Officer,” but the policy was amended to change the
term to “General Counsel.” Sharp, 364 Ill. App. 3d at 68.
17
No. 1-16-1465
agreeing to a policy with such particular language, has agreed to share this information with
[the insurers] under these circumstances.” Sharp, 364 Ill. App. 3d at 73.
¶ 31 The court further found that its reading of the insurance contact was supported by Illinois
public policy, which, as the Waste Management court had found, “encourag[ed] disclosure
between insurer and insured, ‘with an eye toward ascertaining that truth which is essential to
the proper disposition of a lawsuit.’ ” Sharp, 364 Ill. App. 3d at 73-74 (quoting Waste
Management, 144 Ill. 2d at 190). Additionally, “[t]he supreme court has also emphasized that
the purpose of an insurance contract is to protect the insured against loss, damage, or liability
arising from an unknown or contingent event and is applicable only to some contingency or
act to occur in [the] future.” (Emphases in original and internal quotation marks omitted.)
Sharp, 364 Ill. App. 3d at 74 (quoting Outboard Marine Corp. v. Liberty Mutual Insurance
Co., 154 Ill. 2d 90, 103 (1992)). “If the insured knows that a loss will occur, it is not a
contingency and would not be covered under an insurance contract absent an express
agreement to do so. [Citation.] Thus, public policy would favor requiring an insured to share
information with its insurer that would reveal whether a risk was known. The provisions of
the insurance contract between [the insurers] and [the insured] promote these policies by
requiring [the insured] to share information regarding whether its general counsel knew of
particular losses. Accordingly, public policy supports enforcing the policy as written.” Sharp,
364 Ill. App. 3d at 74.
¶ 32 In the case at bar, as noted, the insurance policy at issue is significantly different than that
present in Sharp. The policy itself does not define a “known loss” in terms of plaintiff’s
general counsel’s knowledge, nor does the cooperation clause expressly require plaintiff’s
cooperation in investigations of coverage questions. Defendants do not even acknowledge the
18
No. 1-16-1465
extremely different language of the policies in the two cases, despite the fact that the Sharp
court expressly relied on the policy’s language in finding that disclosure was required.
Furthermore, as plaintiff notes, the coverage issue in Sharp was the “known loss” exclusion,
while the issue in the instant case was whether there was a timely notice of occurrence.
Accordingly, we find Sharp of limited usefulness to the instant case.
¶ 33 As noted, in the case at bar, the factual situation is quite different from that present in
Waste Management because, here, defendants are not seeking the files of the attorneys
engaged in litigation of the underlying cases, as was the case in Waste Management. Instead,
defendants are seeking documents created well before any litigation had commenced. While
“[a]ny condition in the policy requiring cooperation on the part of the insured is one of great
importance [citation], and its purpose should be observed [citation]” (Waste Management,
144 Ill. 2d at 191), this duty is not boundless. It must remain tied to the language of the
cooperation clause itself. Here, the cooperation clause requires plaintiff to “cooperate with
the company and, upon the company’s request, assist in making settlements, in the conduct
of suits and in enforcing any right of contribution or indemnity against any person or
organization who may be liable to the insured.” Defendants have not explained how either
the CRSP documents or the S-1 documents would “assist in making settlements, in the
conduct of suits and in enforcing any right of contribution or indemnity against any person or
organization who may be liable to the insured.” Instead, defendants are seeking the
documents to determine whether they can defeat plaintiff’s request for coverage as a result of
a late notice. Consequently, we cannot find that Waste Management encompasses the
situation in the case at bar with respect to the cooperation clause contained in the insurance
policy.
19
No. 1-16-1465
¶ 34 We are unpersuaded by the arguments raised in the dissent and in defendants’ petition for
rehearing concerning the applicability of a common law duty to cooperate. In its
supplemental opinion upon denial of rehearing, the Waste Management court noted that the
insureds claimed in their petition for rehearing that the language of the insurance policy at
issue was different than that analyzed in the original opinion. Waste Management, 144 Ill. 2d
at 201-02. The court found that, assuming arguendo that the insureds were correct, “[e]ven
were the express words, ‘duty to cooperate,’ omitted from the contract, such a duty could
reasonably be inferred based merely on principles of fairness and good faith.” Waste
Management, 144 Ill. 2d at 202. The court noted that in the case of a “cooperate-and-assist”
clause, as was present in Waste Management and as is present in the case at bar, “the purpose
of the provision is to require the insured to cooperate in good faith with the insurer in its
defense of a claim.” Waste Management, 144 Ill. 2d at 203.
¶ 35 The court further noted that typically, the insurer has limited knowledge of the facts
surrounding a claimed loss, while the insured has exclusive knowledge of such facts,
meaning that “[t]he insurer is, therefore, dependent on its insured for fair and complete
disclosure; hence, the duty to cooperate.” Waste Management, 144 Ill. 2d at 204. Thus,
“[w]hile the insured has no obligation to assist the insurer in any effort to defeat recovery of
a proper claim, the cooperation clause does obligate the insured to disclose all of the facts
within his knowledge and otherwise to aid the insurer in its determination of coverage under
the policy. [Citation.] The insurer is entitled, irrespective of whether its duty is to defend or
to indemnify, to gain as much knowledge and information as may aid it in its investigation,
or as may otherwise be significant to the insurer in determining its liability under the policy
and in protecting against fraudulent claims. To hold otherwise effectively places the insurer
20
No. 1-16-1465
at the mercy of the insured and severely handicaps it in contesting a claim.” Waste
Management, 144 Ill. 2d at 204. The court found:
“Where the insurer provides the defense it is directly involved in the generation of
the defense litigation files and, obviously, has access to the whole of them. Where the
insurer is bound instead to indemnify for the cost of litigation, it plays a different but
no less vulnerable role in the claims process. Thus we do not believe that the insurer,
as indemnifier, is relegated to a less secure position with only limited rights to
disclosure. The insurer-indemnifier is no less interested or entitled to protect its
financial interests and to minimize unwarranted liability claims than if it were
actually participating in or providing the defense. We conclude that while the
insurance contract may not, as insureds assert, expressly state that insureds have a
duty to provide all information and assistance, by our interpretation of the clause no
less is required.” Waste Management, 144 Ill. 2d at 204-05.
¶ 36 Despite defendants’ and the dissent’s arguments otherwise, we cannot find that this
language means that a common law duty to cooperate rendered the attorney-client privilege
inapplicable in the instant case. As noted, the Waste Management analysis occurred in the
context of the litigation of claims for which the insurers sought defense files. By contrast, in
the case at bar, defendants are not seeking the defense files in the underlying litigation but
are, instead, seeking to obtain documents that were prepared years prior to the
commencement of the instant litigation. Contrary to the dissent’s statement otherwise, the
instant case and Waste Management thus do not contain remotely “similar facts.” Neither the
dissent nor defendants’ petition for rehearing cites any authority for the proposition that an
insured must disclose documents that were prepared by separate counsel years prior to any
21
No. 1-16-1465
litigation. Instead, both apply an expansive interpretation of Waste Management that strips it
of the factual context in which that case was decided. Nothing in Waste Management
suggests that it is intended to apply to situations in which an insurer is seeking prelitigation
documents prepared by completely different counsel from the counsel involved in litigating
the underlying claims, and we cannot interpret the case to stand for something it simply does
not hold.
¶ 37 III. Common Interest Doctrine
¶ 38 We also find that the Waste Management court’s discussion of the common interest
doctrine is inapplicable to the instant case. In Waste Management, as noted, the supreme
court found that “[c]learly, here both insurers and insureds had a common interest either in
defeating or settling the claim against insureds in the Miller litigation. We believe that the
communication by insureds with defense counsel is of a kind reasonably calculated to protect
or to further those common interests.” Waste Management, 144 Ill. 2d at 194. The court
further found that “[i]nsureds and insurers share a special relationship; they are in privity of
contract. In a limited sense, counsel for insureds did represent both insureds and insurers in
both of the underlying litigations since insurers were ultimately liable for payment if the
plaintiffs in the underlying action received either a favorable verdict or settlement. To deny
discovery in this instance would be to disregard considerations of public policy which require
encouragement of full disclosure by an insured to his insurer.” Waste Management, 144 Ill.
2d at 194-95.
¶ 39 In the case at bar, however, as noted, there was no “underlying litigation” from which
defendants are seeking disclosure. Instead, they are seeking documents prepared years before
the first lawsuit was filed. While an insurer would certainly have an interest in
22
No. 1-16-1465
communications concerning ongoing litigation against its insured, it would be straining the
Waste Management court’s reasoning to stretch that commonality of interest to the situation
that presents itself in the instant case. Consequently, we agree with plaintiff that Waste
Management is inapplicable to the instant case.
¶ 40 We note that our decision does not necessarily mean that all of the documents withheld
by plaintiff are properly shielded by the attorney-client privilege. “[I]t is the privilege, not the
duty to disclose, that is the exception. [Citation.] Therefore, the privilege ought to be strictly
confined within its narrowest possible limits.” Waste Management, 144 Ill. 2d at 190. Any
documents withheld by plaintiff will need to be evaluated to determine whether they are
privileged, as would ordinarily be done. In other words, our decision only means that the
attorney-client privilege may apply, not that it does apply to each document withheld by
plaintiff. That is a question more properly considered by the trial court in the first instance, as
the trial court should conduct an in camera examination of the documents.
¶ 41 As a final matter, we must address the dissent’s confusion as to this aspect of our
decision, as the dissent claims that it is “incoherent[]” and renders our opinion “what
amounts to an advisory opinion.” The dissent seems to believe that our task was to determine
whether plaintiff “failed to meet its burden to show that the withheld documents were
covered by the attorney-client privilege.” However, this represents a fundamental
misunderstanding of the issue on appeal. The sole issue concerning the attorney-client
privilege that plaintiff raised on appeal concerns the interpretation of Waste Management and
whether the attorney-client privilege is available at all in the context of an insurer-insured
coverage dispute. See Waste Management, 144 Ill. 2d at 191 (“the attorney-client privilege
has no application in this case”); Waste Management, 144 Ill. 2d at 195 (“The attorney-client
23
No. 1-16-1465
privilege simply has no application in this case.”). Answering this question, our holding is
that the attorney-client privilege is available because Waste Management does not encompass
the factual circumstances present in the instant case. Neither party addresses the next
question that will have to be answered, namely, “if the attorney-client privilege is available,
does it apply to these documents?” Since it is not at issue on appeal and was not addressed by
the parties, we likewise will not address it for the first time on appeal sua sponte but will
leave it to the parties to argue before the trial court. This in no way renders our opinion an
“advisory opinion” but simply recognizes that the trial court should make this determination
in the first instance.
¶ 42 The dissent’s misunderstanding of the issue on appeal is also evident by the fact that it
places great significance on the idea that plaintiff has placed its compliance with the notice of
occurrence provision at issue by filing a motion for summary judgment. “An implied waiver
[of the attorney-client privilege] may be found when the client asserts claims or defenses that
put his or her communications with the legal advisor at issue in the litigation.” Center
Partners, Ltd. v. Growth Head GP, LLC, 2012 IL 113107, ¶ 66. However, again, this is the
second step of the analysis—if the attorney-client privilege is available, does it apply to these
documents?—which is not the question we are asked to consider on appeal. The “at issue”
exception to the attorney-client privilege simply has no bearing on the question of whether
the attorney-client privilege may be asserted in an insurer-insured coverage dispute. Indeed,
in Waste Management, the court noted that the insurers argued that the documents sought
were not privileged because they were at issue in the coverage litigation but quickly
dismissed the argument, finding that “the attorney-client privilege has no application in this
case. Therefore, it is of no moment that the files are relevant, and further analysis of the ‘at
24
No. 1-16-1465
issue’ exception would only be superfluous.” Waste Management, 144 Ill. 2d at 190-91. In
other words, if the attorney-client privilege cannot be asserted at all, it is irrelevant whether
the documents are at issue. Here, we have determined that the attorney-client privilege may
be asserted. It will be up to the trial court to determine whether the privilege actually applies,
a determination that certainly may include consideration of whether plaintiff has put the
documents at issue. However, the dissent’s discussion of this exception serves merely to
muddy the waters of the question on appeal.
¶ 43 IV. Peppers Doctrine
¶ 44 Plaintiff also argues that the trial court’s order requiring it to produce the documents is
especially inappropriate because defendants are attempting to litigate facts that overlap with
the facts at issue in the underlying litigation in contravention of the “Peppers doctrine,”
which was set forth by our supreme court in Maryland Casualty Co. v. Peppers, 64 Ill. 2d
187 (1976). Even though we have determined that the attorney-client privilege remains
available to shield these documents, a discussion of plaintiff’s Peppers argument is
nevertheless useful.
¶ 45 “Under the Peppers doctrine, ‘it is generally inappropriate for a court considering a
declaratory judgment action to decide issues of ultimate fact that could bind the parties to the
underlying litigation.’ ” Landmark American Insurance Co. v. NIP Group, Inc., 2011 IL App
(1st) 101155, ¶ 59 (quoting Allstate Insurance Co. v. Kovar, 363 Ill. App. 3d 493, 501
(2006)). “This proscription specifically precludes determination of any ultimate facts upon
which liability or recovery might be predicated in the underlying case.” NIP Group, Inc.,
2011 IL App (1st) 101155, ¶ 59. Thus, it is an abuse of discretion for a trial court in a
declaratory judgment action to make such a determination. Peppers, 64 Ill. 2d at 196; Empire
25
No. 1-16-1465
Fire & Marine Insurance Co. v. Clarendon Insurance Co., 267 Ill. App. 3d 1022, 1027
(1994).
¶ 46 In the case at bar, we agree with defendants that the Peppers doctrine is inapplicable to
the instant situation. The trial court is not being asked to “ ‘decide issues of ultimate fact that
could bind the parties to the underlying litigation.’ ” NIP Group, Inc., 2011 IL App (1st)
101155, ¶ 59 (quoting Kovar, 363 Ill. App. 3d at 501). Instead, the question before the trial
court is simply whether defendants are permitted to view certain documents that plaintiff
claims are privileged in order to oppose plaintiff’s motion for summary judgment. As
defendants note, “ ‘[t]he purpose of summary judgment is not to try an issue of fact but ***
to determine whether a triable issue of fact exists.’ ” Schrager v. North Community Bank, 328
Ill. App. 3d 696, 708 (2002) (quoting Luu v. Kim, 323 Ill. App. 3d 946, 952 (2001)). Thus, in
deciding plaintiff’s motion for summary judgment, the trial court is asked only to determine
whether there is a question of fact as to the issue of notice and is not asked to determine the
issue of notice as a matter of law. We acknowledge that, in the future, the trial court may be
asked to decide whether plaintiff provided a timely notice of occurrence. However, that is not
the issue before this court today and, despite plaintiff’s urging to the contrary, we will not
speculate as to whether the future issues that the trial court will be asked to determine violate
the Peppers doctrine.
¶ 47 We also note that, in situations where the Peppers doctrine is at issue, a court will often
order a stay of the coverage litigation pending the resolution of the underlying litigation. See,
e.g., Sentry Insurance v. Continental Casualty Co., 2017 IL App (1st) 161785 (appeal of a
trial court’s stay of insurance coverage litigation due to Peppers concerns). In the case at bar,
however, neither party at oral argument indicated that it desired a stay. Furthermore, a stay
26
No. 1-16-1465
would not seem to be in the parties’ best interest, as the resolution of the underlying litigation
would have no effect on the late notice defense asserted by defendants, which concerns
whether plaintiff timely provided notice of occurrence.
¶ 48 CONCLUSION
¶ 49 For the reasons set forth above, we find that the situation present in the case at bar is not
encompassed by our supreme court’s holding in Waste Management. Accordingly, the
attorney-client privilege is available to shield any appropriate documents from discovery.
¶ 50 Reversed; contempt finding vacated.
¶ 51 JUSTICE LAMPKIN, dissenting.
¶ 52 I respectfully dissent. I would hold that the attorney-client privilege has no application to
the discovery sought in this coverage dispute between the insured Motorola Solutions, Inc.
(Motorola), and its insurers Zurich and Associated (the insurers). I disagree with the
majority’s conclusion that “Waste Management does not encompass the situation present” in
this case. Supra ¶ 27. I would conclude, consistent with the principles of Waste Management,
that the trial court properly granted the insurers’ motion to compel the sought discovery
based on (1) Motorola’s duty to cooperate in accordance with the insurance policy and the
principles of fairness and good faith and (2) the common interest doctrine. Although I agree
with the majority’s decision to vacate the contempt finding and the majority’s conclusion that
the Peppers doctrine does not apply to the discovery issue before the court, I would affirm
the trial court’s order that granted the insurers’ motion to compel the sought discovery.
¶ 53 The majority mischaracterizes the nature and relevance of the sought discovery as
documents merely “related to securities filings” (supra ¶ 27) or useful only to determine
whether the insurers’ late-notice affirmative defense can defeat Motorola’s coverage claim.
27
No. 1-16-1465
To properly determine the issue on appeal, this court must consider the sought discovery
within the procedural context of the challenged order granting the discovery, i.e., the insurers
sought the discovery about Motorola’s knowledge of the risk of clean room litigation because
the insurers must respond to Motorola’s summary judgment motion, which argues, inter alia,
that Motorola has complied with the notice of occurrence provisions of the insurance
contracts and, thus, the insurers are obligated to pay Motorola’s defense costs in the
underlying clean room litigation.
¶ 54 Specifically, Motorola’s declaratory relief claim against the insurers for coverage had
been stayed by the trial court while this court reviewed the insurers’ interlocutory appeal
about the scope of settlement release agreements. Upon remand, Motorola moved the trial
court to lift the stay and thereafter filed the motion for summary judgment against the
insurers on their duty to pay Motorola’s defense costs in the underlying clean room litigation.
At the hearing on the motion to lift the stay, Motorola argued that the coverage case should
proceed on Motorola’s claim for defense costs but remain stayed on the insurers’ coverage
defenses until the underlying clean room tort actions were resolved. Motorola asserted that
the trial court should decide the issue of the insurers’ duty to pay defense costs now, based
only on Motorola’s complaint and the insurance policies, and that the insurers should litigate
the factual issues concerning their late-notice defense later.
¶ 55 The insurers objected, arguing that the issue of Motorola’s timely notice to the insurers
was a condition precedent to coverage, extrinsic facts about any Motorola clean room
liability investigation were relevant to the issue of coverage, and the insurers’ late-notice
issue in the coverage action overlapped with issues in the underlying clean room tort actions.
28
No. 1-16-1465
The insurers asserted it would be improper for the trial court to adjudicate any portion of the
coverage issue prior to the resolution of the overlapping issues in the clean room tort actions.
¶ 56 The trial court granted Motorola’s motion to lift the stay, noting that the first clean room
tort action was scheduled to begin in six weeks and Motorola had moved for summary
judgment against the insurers on the coverage claim. However, before the court would set a
briefing schedule on Motorola’s summary judgment motion, the trial court allowed the
insurers time to file an Illinois Supreme Court Rule 191(b) (eff. Jan. 4, 2013) motion to
obtain necessary discovery to respond to the summary judgment motion.
¶ 57 Thereafter, the insurers filed their Rule 191(b) motion and asked the court to stay the
briefing and decision on Motorola’s summary judgment motion. The insurers argued the
Peppers doctrine, as set forth in Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187 (1976),
was not applicable because the court would not be adjudicating the merits of either party’s
claims or defenses; rather, the court would determine merely whether the insurers would get
discovery before responding to Motorola’s summary judgment motion. Motorola argued that
the insurers must litigate their coverage defense later because they should not be allowed to
prejudice Motorola by attempting to prove in the coverage action the exact same facts at
issue in the underlying clean room tort actions. The trial court granted the insurers’ Rule
191(b) motion and instructed the parties to draft an appropriate protective order and narrow
the discovery to what the insurers needed to respond to the summary judgment motion.
¶ 58 After the trial court issued the parties’ stipulated protective order, Motorola refused to
produce to the insurers certain information for their response to Motorola’s summary
judgment motion. The insurers moved the court to compel Motorola’s production, arguing
they were entitled to the sought discovery based on Motorola’s duty to cooperate and the
29
No. 1-16-1465
common interest doctrine. The insurers also argued that Motorola failed to carry its burden to
sustain its claim that the sought discovery was privileged and protected.
¶ 59 Motorola objected, asserting that the CRSP documents were protected by the work
product privilege and the S-1 documents were protected by an unspecified privilege.
Motorola, however, did not provide a privilege log describing the nature of the S-1
documents that were not being produced. Motorola argued that the insurers had all the facts
they needed to respond to the summary judgment motion and the protective order would not
eliminate the risk of the clean room plaintiffs obtaining the privileged information. Also,
Motorola claimed the sought information was irrelevant to the insurers’ late notice defense
because any clean room pre-litigation risk analysis by Motorola occurred dozens of years
before Motorola received any notice of a clean room cause of action. Motorola asserted that
if it had submitted the sought discovery for in camera judicial review, the trial court would
agree with Motorola that the sought discovery was irrelevant to the insurers’ late notice
defense.
¶ 60 On March 8, 2016, the trial court granted the insurers’ motion to compel because the case
was “still in the discovery stage.” The court explained that it would not conduct an in camera
inspection of the documents because the stipulated protective order was in place and such an
inspection would unduly burden the court’s limited resources. The court stated Motorola
could not “have it both ways” by claiming that any 1996 clean room litigation risk analysis
by Motorola was “in anticipation of litigation” and thus privileged, while simultaneously
claiming that Motorola was not aware of any risk triggering the insurance notice-of-
occurrence provisions until 2007, when the clean room plaintiffs began filing their tort
lawsuits.
30
No. 1-16-1465
¶ 61 Thereafter, Motorola moved the court to reconsider the order and require the insurers to
respond to Motorola’s summary judgment motion using the non-privileged documents
available to them. The trial court denied the motion to reconsider but granted Motorola’s
request for a finding of non-contumacious contempt so that Motorola could obtain appellate
review of the March 8, 2016, order.
¶ 62 The attorney-client privilege may be waived as to a communication put ‘at issue’ by a
party who is a holder of the privilege. Shapo v. Tires ‘N Tracks, Inc., 336 Ill. App. 3d 387,
394 (2002); Fischel & Kahn, Ltd. v. Van Straaten Gallery, Inc., 189 Ill. 2d 579, 585 (2000);
Waste Management, 144 Ill. 2d at 190-91. In the present case, Motorola successfully moved,
over the insurers’ objections, to lift the stay in the coverage dispute and then moved for
summary judgment on the issue of the insurers’ duty to pay Motorola’s defense costs in the
underlying clean room litigation. Motorola has placed at issue in the coverage dispute and
waived as to its insurers the attorney-client privilege with respect to any 1996 clean room
litigation risk analysis. By asking the court to find that there is no genuine issue of material
fact concerning Motorola’s entitlement to payment of its clean room defense costs, Motorola
asks the court to find that it has complied with the terms of the insurance contracts, including
the notice of occurrence provisions, which are a condition precedent to coverage. Motorola’s
1996 clean room risk analysis is not merely relevant to the dispute; rather, Motorola’s
compliance with the notice of occurrence provisions can only be fairly determined by
disclosure of that risk analysis. See Western States Insurance Co. v. O’Hara, 357 Ill. App. 3d
509, 520-21 (2005).
¶ 63 In Waste Management, 144 Ill. 2d at 193, the court held that the attorney-client privilege
did not apply to bar discovery of communications or documents created in defense of two
31
No. 1-16-1465
previously-settled lawsuits in a subsequent coverage dispute regarding one of the lawsuits. In
so holding, the court looked at the insured’s contractual duty to cooperate with the insurer,
which was designed to protect the insurer’s interests and prevent collusion between the
insured and the injured party. Id. at 191-92, 202. The court also considered the duty to
cooperate reasonably “inferred based merely on principles of fairness and good faith” (id. at
202), noting that the insurer typically has little or no knowledge of the facts surrounding a
claimed loss and thus is dependent on its insured for fair and complete disclosure (id. at 204).
¶ 64 Furthermore, Waste Management held that the insurers’ entitlement to production of the
files also arose out of the common interest doctrine even though the case did not involve a
situation where an attorney either provided joint or simultaneous representation to the parties
or a situation where the attorney was either retained by or in direct communication with the
insurer. Id. at 194. Although the insured and insurer were adverse to each other in the
coverage litigation, they shared a common interest in defeating or settling the underlying
litigation (id.), and the denial of discovery to the insurer in the coverage action would
disregard public policy considerations “which require encouragement of full disclosure by an
insured to [its] insurer” (id. at 195).
¶ 65 Based on a straightforward application of Waste Management to the instant case, I would
hold that Motorola’s duty to cooperate, which is based on both the broad language in the
contractual cooperation clause and the principles of fairness and good faith, and the common
interest doctrine render the attorney-client privilege inapplicable in the instant coverage
dispute between Motorola and the insurers. I would affirm the trial court’s ruling that the
insurers are entitled to the sought discovery to respond to Motorola’s motion for summary
judgment.
32
No. 1-16-1465
¶ 66 The majority’s attempt to distinguish Waste Management on its facts is unpersuasive.
First, concerning the insured’s duty to cooperate with its insurer, the majority believes there
is some significance to the fact that, here, the insurers seek information created by Motorola
years before the underlying clean room tort actions had commenced, whereas the insurers in
Waste Management sought the litigation files in underlying tort actions that had already
commenced. This distinction hardly serves to minimize Motorola’s duty to cooperate with
the insurers. Here, the issue of cooperation arises in the context of Motorola’s claim that it
has complied with the insurance policies’ notice provisions and thus is entitled to summary
judgment now on the issue of the insurers’ duty to pay Motorola’s defense costs in the
underlying clean room litigation. Accordingly, Motorola has affirmatively placed at issue its
alleged compliance with the notice of occurrence provisions, and any 1996 clean room
litigation risk analysis conducted by Motorola is a relevant and necessary source of discovery
for the insurers, who must respond to Motorola’s motion for summary judgment. The fact
that no clean room tort lawsuit had been filed when Motorola conducted the 1996 risk
analysis is completely irrelevant to the court’s analysis of Motorola’s duty to cooperate.
¶ 67 Second, as discussed above, the majority attempts to minimize the clear relevance of the
sought discovery by mischaracterizing it as mere securities filings or support for the insurers’
affirmative defense to coverage. The majority then utilizes this mischaracterization to support
its conclusion that such documents are not subjects included within the parties’ contractual
cooperation clause, which the majority erroneously believes is narrower and drastically
different from the cooperation clause at issue in Waste Management. Specifically, the
majority cites the portion of Waste Management that discussed the cooperation clause
requirement that the insured must assist the insurers in the conduct of suits and in enforcing
33
No. 1-16-1465
any right to contribution or indemnity and “give all such information and assistance as the
insurers may reasonably require.” (Internal quotation marks omitted.) Id. at 192. The
majority then contrasts this board cooperation clause language with the provision in the
instant case—which requires Motorola to cooperate with the insurers and, upon request,
assist them in making settlements, in the conduct of suits, and in enforcing any right of
contribution or indemnity—to conclude that Motorola’s contractual duty to cooperate does
not even touch upon the sought discovery.
¶ 68 The majority’s analysis, however, disregards Waste Management’s supplemental opinion
upon denial of rehearing, which established that the existence of the insureds’ duty to
cooperate with its insurers concerning the coverage dispute was not dependent upon the
broad cooperation clause language cited by the majority. Id. at 202. Specifically, the insureds
in Waste Management informed our supreme court that it had misapprehended the facts
concerning the language of the cooperation clause, which did not include the “shall give all
such information and assistance as the insurers may reasonably require” provision. (Internal
quotation marks omitted.) Id. at 201-02. Rather, the applicable cooperation clause in Waste
Management was essentially identical to the “insureds shall cooperate with the company”
language of the cooperation clause at issue here. (Internal quotation marks omitted.) See id.
at 202.
¶ 69 In its supplemental opinion, the court accepted as true the insureds’ version of the
contract terms, but concluded that even if “the express words, ‘duty to cooperate,’ [were]
omitted from the contract, such a duty could reasonably be inferred based merely on
principles of fairness and good faith.” Id. In determining the scope of the duty, the court
noted that an insurer is dependent on its insured for fair and complete disclosure because the
34
No. 1-16-1465
insurer typically has little or no knowledge of the facts surrounding a claimed loss, whereas
the insured has exclusive knowledge of such facts. Id. at 204. Accordingly,
“[w]hile the insured has no obligation to assist the insurer in any effort to
defeat recovery of a proper claim, the cooperation clause does obligate the
insured to disclose all of the facts within his knowledge and otherwise to
aid the insurer in its determination of coverage under the policy.
[Citation.] The insurer is entitled, irrespective of whether its duty is to
defend or to indemnify, to gain as much knowledge and information as
may aid it in its investigation, or as may otherwise be significant to the
insurer in determining its liability under the policy and in protecting
against fraudulent claims. To hold otherwise effectively places the insurer
at the mercy of the insured and severely handicaps it in contesting a claim.
[Citation.]” Id.The majority’s analysis of Motorola’s duty to cooperate is inconsistent with and refuted by
Waste Management, which determined under similar facts and essentially identical
cooperation clause language that the attorney-client privilege was not applicable to bar the
disclosure to the insurer of defense litigation files about the underlying litigation.
¶ 70 Third, concerning the common interest doctrine, the majority again erroneously attaches
significance to the fact that the sought discovery involves Motorola’s litigation risk analysis,
which occurred years before any clean room plaintiffs gave Motorola notice of their cause of
action. As discussed above, this fact is completely irrelevant in this discovery dispute
because Motorola has placed at issue its knowledge of the risk of clean room litigation by
successfully moving the trial court, over the insurers’ objections, to lift the stay in the
35
No. 1-16-1465
coverage litigation and by arguing that Motorola has complied with the insurance contract
provisions and thus is entitled to summary judgment on the issue of the insurers’ duty to pay
Motorola’s defense costs. Moreover, the majority’s vague analysis of the common interest
issue in supra ¶¶ 38-40 cites no support for the proposition that Waste Management’s
common interest analysis is somehow limited to situations where the underlying litigation in
a coverage dispute has commenced. Waste Management clearly states that in coverage
disputes between insurers and their insureds, until there is a declaration to the contrary, the
insurers continue to bear potential responsibility for settlement and litigation costs in the
underlying action and thus the insurers and insureds have a common interest in documents
generated in anticipation of minimizing liability in the underlying defense litigation. Waste
Management, 144 Ill. 2d at 194-95, 209. Although Motorola and the insurers are now adverse
concerning the issue of coverage, no such adversity exists as to the underlying litigation. See
id. at 209.
¶ 71 Finally, after the majority concludes that Waste Management’s duty to cooperate and
common interest doctrine analysis of attorney-client privileged documents does not apply to
the documents withheld here, the majority incoherently states that its “decision does not
necessarily mean that all of the documents withheld by [Motorola] are properly shielded by
the attorney-client privilege” and that the trial court should conduct an in camera
examination to determine if the attorney-client privilege even applies. Supra ¶ 40. If the
majority thinks Motorola failed to meet its burden to show that the withheld documents were
covered by the attorney-client privilege, then the majority should not have issued what
amounts to an advisory opinion.
36